By James A. Loyola
With the spike in inflation rate bearing heavily on how investors trade the local stock market, defensive stocks with stable demand is being recommended by stock analysts.
“While controlling inflation rests on the hands of competent economic managers, it would be best to stay defensive by carefully selecting stocks anchored on business models where demand is supported,” said 2TradeAsia.com.
The online brokerage said such stocks can be found in the food and beverage, telecommunications services, utilities and fuel sectors.
For its part, Abacus Securities Corporation said that, “as inflation remains a very big concern for most companies, there is one sector which actually benefits during times of short-term high inflation (one year or less). We believe the consumer retail sector is one such beneficiary.”
It explained that this is because the retail sector simply passes on any price changes to their customers immediately while the impact to operating expenses is delayed.
“Since most of the listed companies are also leaders in the retail sector, they enjoy some form of bargaining power against their suppliers and the wide assortment of products minimizes earnings volatility while addressing different market segments stabilizes margins,” Abacus said.
It noted that the recent downturn in the overall market makes the retail sector even more attractive and chief among these is Robinsons Retail Holdings, Inc., which is trading below average but has strong earnings growth.
“We still like Wilcon Depot due to good growth prospects but it is just 5 percent shy of our target price of R12.50. Puregold also showed similar growth profile with RRHI but then a majority of its target market is closer to the lower middle class and to competition where it changed strategy to protect its market share at the cost of its margins,” Abacus said.